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Audit Check list
Please read the Disclaimer....
Key points you should consider before the auditor
arrives.
It's ok to ask the auditor is there anything that you should do or have ready
to prepare for the audit. The auditor will most likely ask for all your repo
records for at least one year and for the records on the last 30 sales.
They may also ask you to show them your payoff calculations for early payoffs and
trade-ins to make sure your payoff amount is actually the principal only and
not the total loan balance.
Also they will check to see if the repossessed
vehicles were sold for more than the allowed amount unless it was a strict
foreclosure. Late Fees on late payments may be examined to see if they exceed
legal limits. For Payoffs, Trades and Repos Have your payoff reports in the
customer file ready.
The OCCC wants to see the balance at zero. Post the REPOCR
UI/CR and Any LOSSCR as needed to clear the balance. The OCCC may ask for
these lists to see if anyone has a balance left after Repo, Trade or Payoff.
If there are, they may ask you to do something to clear the balance, especially
on strict foreclosure.
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Topics:
Dates
Addendums
Advanced Tax-Deferred Tax
Official Fees
Late Fees
Automobile Titles
Trade-ins
Repossessions
Notes
Reports
Credit Applications
Notice of Adverse Action
Privacy Act Notice
Liability Insurance
Dates:
First Payment Date - Don't change it. The program charges interest for
the number of days in a regular period. Altering the 1st payment date, if you
charge interest, will throw off the APR. Cars*Plus is not engineered for short
or long first periods.
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Addendums:
As tempting as it may be to incorporate your own homemade addendums in the
paperwork, beware that the FINANCE CODE has chapters dedicated to protect the
customer from being threaten. The law is NOT limited to written means.
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Advanced Sales Tax Vs Deferred Sales Tax:
The sales tax deferred method excludes the sales tax from the interest
calculation
therefore charging a lesser amount of interest than the advance tax method where
the dealer pays the sales tax up front. Beware that entering and producing an
advance sales tax contract into the system and later altering or handwriting
form 130U to declare the sale as "Seller finance" and pay the tax a the money is
collected is fraud.
The auditor will ask for receipt of sales tax payment on
advanced sales contract. Failure to produce this receipt will produce unpleasant
results and consequences. Utilize Privacy Act Notice: The privacy act
disclosures
(opt-out) also apply to credit applications not just customers. If they fill out
a credit application, you need a privacy act form signed.
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Official Fees:
Don't
charge more than what you have a receipt for. The retail buyers may only be
charged the amount that will be disbursed to public officials. If you over
charged because you didn't know the exact amount, then refund or credit the customer any
overages. Cars*Plus users can post these credits using the other charges box
provided in the payment section. Keep the tax office receipt for proof of the fees paid
and a printed copy of the credit to the customer on every folder. You can also
refund money to the customer and keep a copy of the cleared check on file.
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Late Fees:
There has been some confusion in the past over the rules. The contract
says you will charge 5% of the payment amount after 15 days. The key word here
is "after". Technically, "after" means on day 16th, however day 16th ends at
midnight so don't assess a late fee until the morning after which is the 17th day. But,
keep in mind that; If you are not open for business on day 16th or 17th the customer
cannot pay on those days either. Remember that you can only charge a late fee on
the same payment once and you cannot charge late fees on late fees, only on the
payment amount.
& Cars*Plus allows the user to select the days late per lender.
Any overcharges on fees, taxes, interest, etc: Will have to be credited or
refunded going back probably a long time. In the case of closed accounts, if refunded
checks come back as undeliverable, it will probably have to go in a fund where the
money is released after a period of time but not to you.
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Automobile titles:
For each sale you make, keep proof of transferring the tile to the customer
within the 20 day limit. The Texas Finance Code Section 348.408 requires that you
release the lien no later than 10 days after the debt has been satisfied. Keep proof of
this on every folder.
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Trades:
When there is a trade payoff, make sure the trade payoff box contains the
actual payoff amount plus any deferred down balance, not the loan balance. If the
customer is trading in a vehicle currently being financed by you, don't forget the post
the TRADE credit to clear the account balance and pay any remaining sales tax due.
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REPOSSESSIONS:
Entire books have been written on this subject. Attorney Mike Dunagan has
published a manual that is a "must have". If you don't have Mike's books, get them a sap.
Be sure to understand the rules about strict foreclosure. Refer to Mike Dunagan's
book for instructions.
If the customer has paid 60% or more of the cash price strict
foreclosure is a no-no. There is some controversy as to what is 60% of what and
the OCCC has not provided an approved way of calculating this figure. Cars*Plus
calculates the 60% based on principal received but it also takes into account fees paid to
others and sales tax balance on deferred tax sales.
After many audits, the OCCC
have not indicated that the calculation is wrong. See the waiver of rights
document in Dunagan's book and Sections 9.620 and 9.621 of the TEXAS BUSINESS AND
COMMERCE CODE.
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Note:
Just because the program provides more than one repossession letter, it
doesn't mean you send them all. Only mail the applicable letters and notices. For strict
foreclosures send the strict foreclosure letter and for regular foreclosure send
the regular letter. Be aware of when you can and cannot charge a repossession fee.
When you sell the vehicle, keep copies of the paper work on the original folder as
well. Non Strict foreclosures especially, must be disposed of or sold properly. If the
is a surplus or deficiency you must act according to the surplus and/or deficiency
letter you sent to the customer when the vehicle was repossessed. Utilize Condition
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Reports:
The condition report is a method by which the commercially reasonableness of
the disposition of collateral can be documented. Every aspect of the disposition of collateral including method, manner, time, place and other terms must be commercially reasonable.
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Credit Applications:
Some credit applications have boxes considered discriminatory, especially but
not limited to Marital Status, Additional Income and Sex. Not all credit application
forms in the market are compliant. Ask the vendor if the form is compliant with
the Equal Credit Opportunity Act. Regulation B Section 202.5(d)(1) Rules Concerning
Taking of Applications. If you are using credit apps that are not compliant, get
new ones or at least black out all the "Not allowed" boxes so customers don't answer
them.
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Notice of adverse action:
Equal Credit Opportunity Act. Regulation B Section 202.9(a)(1)("A creditor shall notify an applicant of action within 30 days after receiving a completed application concerning the creditor's approval of, counteroffer or adverse action on the application." Obtain and begin using appropriate letters of adverse action and keep them on file.
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Utilize Privacy Act Notice:
The privacy act disclosures (opt-out) also apply to credit applications not
just customers. If they fill out a credit application, you need a privacy act form
signed.
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Requirement to provide proof of liability insurance document:
This document was discontinued several years ago. You should have deleted it
from your forms list. Don't print it or make the customer sign it. Do not confuse
this with the document to require a customer to maintain full coverage insurance on
the vehicle they are financing.
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Disclaimer:
The above comments are by no means, intended to cover all areas that an
auditor may choose to review during an audit. The above comments should
not be considered legal advice.
The information above is not a legal document, we simply compile a list
of the items that we have heard about, most of which are simply common
sense and or compiled from other documentation readily available to all
dealers. Radiant Concepts, Inc. cannot provide legal advice and
recommends consulting an attorney or legal professional on matters of
law and the TEXAS FINANCE CODE.
For further information we also recommend attending the free Dealer
Training Seminars that the DMV hold. You can view their schedule by
visiting their website:
http://www.txdot.gov/business/vehicle_dealers/seminars.htm
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